The coronavirus has seriously disrupted the normally balanced flow of shipping containers within supply chains, while production shutdowns and reduced workforces in China have hit factory output.
As the virus spreads, here are four things you should be doing to deal with the crisis:
1. Review inventory levels
“Companies should immediately review their inventory levels and policies – and ask suppliers to do the same,” said Tim Lawrence, head of manufacturing at PA Consulting. “They should then work with their suppliers to identify the scale and timing of their exposure within the supply chain, including effects that may be hidden. These could be where alternative suppliers are likely to be dependent on the tier three or four supplier in Hubei [the industrial province of China most affected by the virus].”
2. Communicate with every supplier
“Communicate with every supplier that you have a couple of options to support them during the period and assure them that if they need to pause current production, the relationship will be there when they are ready,” said Danny Thompson, SVP of market and product strategy at software firm Apex Analytix. “If your supplier says they can continue operating, you will need to assess if this is realistic or not.”
You should also review agreed pricing structures and market position to ensure primacy of supply. “Or you will be at the back of the queue as supply resumes,” warned Lawrence.
3. Ensure a disaster recovery plan is in place
It will take time for production to resume and goods to be moving freely again. Joe Farrell, vice president of international operations at commerce services firm PFS, told SM: “If quarantined or delayed shipments all turn up at once for example, they need to be able to quickly get back on track. Many brands and retailers do not have a well-documented plan written, and this could have serious consequences on their businesses.”
4. Prepare for when the epidemic is over
It’s time to think about managing wider supply chain risks. “Supply chain disruption can be managed by understanding the location risk across the tiers,” said Lawrence. “It is important to avoid clustering of suppliers in one region and particularly around similar supply chains.”
Thompson said: “Risk assessments and continuous monitoring for risks associated with your suppliers are key first steps. And determining which alternative vendors can fill in as a replacement will be critical in minimising disruption when it happens next.”
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